Loan structure advice

Discussion in 'Investment Strategy' started by elwil, 14th Jun, 2018.

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  1. elwil

    elwil Member

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    Hi all,

    I currently have a PPOR which I am aiming to turn into an IP, and purchase my next PPOR (with potential aims to turn this into another IP in 5-10 years).

    Current property:
    Loan of $395k, IO with 100% offset ($250k in offset).
    Estimated value of $650k

    Aiming to purchase next PPOR in the range $1-1.4m. I have been advised of a number of very different options which has confused me. Would it be sensible to:

    1. Transfer current PPOR into spouse's name, and borrow 100% of current value (we live in Victoria)
    2. Use the equity from this re-gearing to help fund the next purchase, and borrow up to 90% for the new property
    3. Obtain IO for the new property with 100% offset, transferring current offset funds into the new PPOR

    By doing this I understand I will obtain flexibility in terms of turning the new PPOR into an IP (although if we are unsure that this will be the ultimate goal is it better to get a P+I loan for the new PPOR?) My concern is having such a large amount of debt.

    Thanks
     
  2. Jane Ridder

    Jane Ridder Well-Known Member

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    @elwil do you know what your current property will rent for? I'm asking because it might not be worth hanging onto it if the yield to value ratio is poor. There is also a risk that your loans could end up being upside-down in the scenario you've described (large PPOR debt/small IP debt).

    It could be worth selling your current PPOR (without CGT liability) and put as much of the proceeds into an offset account on your new home. And you could continue to invest.

    Then after 5 - 10 years if you move out of the new home and keep it as an IP you can use any accumulated funds in your offset account to secure the next PPOR purchase and minimise the loan amount.

    Just a suggestion, not advice ;)
     
    Last edited: 14th Jun, 2018
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Who advised you on such a thing?

    it may or may not be sensible. You have to get some legal and tax advice and do the sums on the costs v the benefits.

    I have written a number of legal and tax tips on these - search for 'spousal sale'
     
  4. elwil

    elwil Member

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    It would rent for around $400/week.

    This strategy has been advised by a mortgage broker/financial planner. I'm not sure if the advice is good though? What would be the best strategy to turn the current PPOR into an IP and utilise the equity to purchase our next PPOR?

    Is this how property portfolios are started or do most people just sell and upgrade each PPOR? If selling the current PPOR is a better idea then it seems a waste to have been paying IO for the last few years.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It involves legal and tax advice so something they cannot advise on. Seek proper advice before trying it as it could be expensive and end up without benefit.

    For some other strategies look at:

    Strategy: 11 Strategies for when you move out of the PPOR and keep it Strategy: 11 Strategies for when you move out of the PPOR and keep it
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Hi and welcome!
    First up you can’t borrow 100% of the value so that’s going to mean you have about $125k in equity to use. You’ll then be looking at about $40k stamp duty, so you won’t have a 10% deposit.

    Generally speaking though, if it’s going to be an IP down the track, use as much debt as possible for the purchase and as little cash.
    It’s highly unlikely you’ll be able to get IO on a PPOR if only using a small deposit, so be prepared for P&I.
     
  7. elwil

    elwil Member

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    Thanks for the advice everyone. I have had a read of your tax strategies Terry, although I'm not sure which is the best option for myself? Ultimately we would like to keep the current PPOR and turn it into an IP, using the equity to help towards the next PPOR. But every way I look at it, it seems it would have been better all along to purchase the family home PPOR first then start investing, rather than upgrading step by step.

    I am able to borrow 90-100% with no LMI due to my profession, as well as getting IO on a PPOR (for now).
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Who through? BoQ Specialist? Watch them, they'll x-coll you up to the eyeballs and you won't be able to refi easily.
     
  9. elwil

    elwil Member

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    Yep. We are planning to change banks for the next purchase though, as haven't found them very helpful.
     
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